The fundraising comes as China's government promotes new energy vehicles (NEVs), a category comprising battery-powered and plug-in battery-petrol hybrid cars, to help reduce air pollution and support high technology development.

WM was founded in January 2015 by Freeman Shen, a former executive at Fiat Chrysler Automobiles NV and Volvo Cars owner Zhejiang Geely Holding Group Co Ltd.

Its backers include Chinese technology giants Baidu Inc and Tencent Holdings Ltd as well as Sequoia Capital China and government-backed investment firm China Chengtong Fund, according to WM.

Baidu will likely lead the latest fundraising with an investment of about 1 billion yuan, said one of the people, who declined to be identified as the matter was private. WM is also in talks with Tencent and other prospective investors, said the people.

Proceeds raised will be primarily used to develop manufacturing facilities as well as for research and development, one of the people said.

In a response to Reuters queries on Thursday, WM said the size of the latest fundraising would exceed 3 billion yuan and the proceeds would be used in "developing new phase of R&D, customer experience and services". It declined to comment further on other fundraising details.

Baidu declined to comment. Tencent didn't respond to a request for comment.

Shanghai-based WM is one of several largely Chinese-funded EV startups betting on the benefits of local production to compete with EV benchmark Tesla Inc and other auto giants. Its local rivals include Nasdaq-listed NIO Inc and Xpeng Motors, backed by Alibaba Group Holding Ltd.

While China's wider car market has cooled, its NEV market is growing rapidly. NEV sales rose 55 percent in September compared with the same month last year, and grew 81 percent to 721,000 vehicles in January-September, the country's top auto industry association said this month.

NIO, which in September raised $1 billion in one of the biggest U.S. initial public offerings this year by a Chinese firm, said last week it delivered 3,268 of its ES8 electric sport-utility vehicles (SUVs) in the third quarter, exceeding its 3,000 target.

WM late last month started deliveries of its first vehicle, the EX5 battery-electric SUV, betting on lower pricing. It is building them in the eastern city of Wenzhou at a plant which has an annual capacity of 100,000 units, according to the company.

It aims to deliver 10,000 vehicles by the end of this year with targeted deliveries of another 90,000 units in 2019, helped by the launch of two new models, EX5 Pro and EX6, said the company.

The name WM stands for the German word Weltmeister, meaning world champion. In Chinese script, its name is Weima, or 'powerful horse'. ($1 = 6.9364 Chinese yuan renminbi)